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At arm's length: The reporting methods

Science tracked offshore investments by seven of the world’s largest private, research-oriented foundations using several sources. They included foundation tax returns, financial statements, and a database of about 13.4 million documents, known as the Paradise Papers, many of which were leaked from Appleby, a law firm founded in Hamilton, Bermuda, that handles legal and commercial aspects of such deals. When possible, Science verified the domicile of offshore funds by examining their filings with the U.S. Securities and Exchange Commission, local registries in the Cayman Islands or other jurisdictions, or in contracts and other legal documents from the Paradise Papers.

The Robert Wood Johnson Foundation and the Howard Hughes Medical Institute include extensive relevant details about their investments—including many offshore fund names and amounts invested—in tax filings and audited financial statements. Several other foundations list partial information or none, making estimates of their overall offshore holdings impossible. (Foundations are required to specify each investment, but the U.S. Internal Revenue Service often overlooks reporting lapses because of shortfalls in enforcement resources, says Eric Chaffee, a tax expert at the University of Toledo College of Law in Ohio.)

Science calculated offshore investment totals conservatively, based on clear information. In some cases, foundation offshore holdings are certainly larger. Available sources are lacking for reasons beyond the tax-form gaps. Complex structures used to connect investors, managers, investment funds, and management entities can obscure the funds’ countries of registration. The Wellcome Trust lists investment gains or losses, but not the amounts invested in each fund. The Gordon and Betty Moore Foundation lists some investment funds by untraceable numerical codes, rather than names. And several foundations, including Robert Wood Johnson and Wellcome, list dozens of investments by abbreviated names, making them impossible to identify with certainty. Further complicating matters, many hedge funds and private equity firms use nearly identical names for multiple funds—some based offshore, others in the United States.

None of the foundations was willing or able to provide a precise total for the offshore components of their diverse, multibillion-dollar portfolios. Wellcome said it does not even try to keep track of funds by domicile. Science estimated that Robert Wood Johnson invests $3 billion in offshore havens. The foundation says about $4.5 billion of its holdings are invested overseas—including Canada and Europe—with most of that figure invested in funds based in the Cayman Islands.